Good morning, ladies and gentlemen. And thank you for standing by. Welcome to the MAXIMUS Fiscal 2016 Fourth Quarter Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, Lisa Miles, Senior Vice President, Investor Relations for MAXIMUS. Thank you. You may begin.

Good morning, and thanks for joining us. With me today is Rich Montoni, CEO; Bruce Caswell, President; and Rick Nadeau, CFO. I would like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions and actual events and results may differ materially as a result of risks we face, including those discussed in Exhibit 99.1 of our SEC filings. We encourage you to review the summary of these risks in our most recent 10-K filed with the SEC. The Company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances. Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of the non-GAAP measures presented in this document, please view the Company's most recent quarterly earnings press release. And with that, I'll hand the call over to Rich.

Thanks, Lisa and good morning everyone. With U.S. presidential elections still fresh in everyone's mind, I will start by addressing our perspective on the elections and the implications for MAXIMUS. The Affordable Care Act was initially a significant growth driver for MAXIMUS. But since its launch, much has changed with the on-the-ground realities; some states that initially launched their own state-based exchanges have gone back to the federal exchange; others have worked to more tightly integrate their exchange with Medicaid and the related state health programs; and some insurance carriers have pulled out of the exchanges and premiums have continued to rise. As a result of all these dynamics, we have experienced both positive and negative trends in this portion of our business. In many cases, we picked up supplemental work tied to new requirements under Medicaid, administrative tasks that help make the boundaries between programs more seamless, consumer engagement and overall state support for a variety of health benefits eligibility functions; all of which provided positive uplift to our results, and are expected to continue. Offsetting these uplifts were ACA related contracts that have already gone away; including work in California, Connecticut, Hawaii, Minnesota and West Virginia, as well as the closing of a large customer contact center and the support for the Federal Marketplace. Consequently, the book of business that was tied exclusively to ACA is actually lower now by roughly $100 million and when the exchanges first launched. In fact, we presently estimate that our remaining contracts directly tied to ACA will contribute approximately $160 million of revenue in fiscal 2017. This is baked into 2017 guidance that we issued this morning. These contracts include the exchanges in Maryland, Vermont and Washington D.C., small portions of our New York HAAS contract, as well as our contact center…

Thanks, Rich. Overall we are pleased to meet our objectives, and deliver a record year of solid double-digit growth for both revenue and earnings. As most of you know, we started fiscal year 2016 with some challenges on one of our largest contracts. At that time, the management team said we would tackle these issues head-on. During the year, we took the necessary steps to get the program on track, which allowed us to deliver full-year earnings towards the top-end of that range. Revenue for fiscal year 2016 increased 14.5% over last year. Of this growth, 9% was organic, driven by the Health Services segment, and 8% was acquired. All of this growth was partially offset by a 2% decline tied to currency effects. On a constant-currency basis, revenue would have increased 17% year-over-year. Total Company operating margin for fiscal year 2016 was 11.9%, which, as expected, was tempered by new programs and start-up. For fiscal year 2016, net income attributable to MAXIMUS increased 13%. And GAAP diluted earnings per share increased 14% to $2.69 compared to fiscal year 2015. This included a net benefit of $0.03 from a gain of $0.06 from the sale of our education business. Legal costs of $0.02 related to a matter that occurred in 2014 and acquisition related expenses of $0.01. Excluding these items, diluted earnings per share for fiscal year 2016 would have been $2.66. Let me discuss results for the fourth quarter, revenue grew 8% compared to last year. Of this, approximately 9% was attributable to organic growth and 1% was acquired. This growth was partially offset by a 2% decline, or approximately $13.6 million related to foreign currency exchange rates. On a constant-currency basis, total revenue would have grown 10% for the quarter. Fourth quarter operating margin was strong at 13%.…

Thank you, Rick. Now, more than ever, bringing together the understanding of how costs, quality and access to services intersect could not be more important. MAXIMUS is really well positioned to address these challenges, and be a change agent. We offer scalable, cost-effective, and operationally efficient services for a wide range of government programs. We look forward fiscal 2017 to be another year of growth, top and bottom line. Most importantly, our longer term success in growing our business is dependent on our ability to identify and win new work, and to deliver on our contractual obligations. Our robust pipeline represents the core engine of this future growth. Over the next three to five years, the macro trends for our business remain unchanged and solid. And governments around the world need to find more ways to run their program more effectively and efficiently, while at the same time, dealing with rising case loads, shifting demographics, and unsustainable program costs. We recognize that operating a business is a balance of risk and reward. We continue to believe our portfolio mix of core business, near adjacencies, and new growth platforms will allow us to achieve a healthy growth trajectory for years to come. And in closing, I thank our more than 18,000 employees around the world for their dedication to providing high quality services to our government clients and the citizens they serve. Operator?

Thank you. At this time we'll be conducting a question-and-answer session [Operator Instructions]. Our first question is from Brian Kinstlinger with Maxim Group. Please proceed with your question.

I want to start with the obvious first question. I'm curious your view, Rich, on your ACA business for $160 million goes away, and then if you could also quantify for investors kind of a rough number of an EPS contribution this year for net revenue?

Brian, I think you asked the two part question, and I am going to hand this over to our Chief Financial Officer, Rick Nadeau in a minute. But the two parts are, one, what's the risk -- our assessment of the risk that the $160 million, which is kind of our current run-rate and what we’ve assumed in our fiscal '17 estimates relative directly related to the Affordable Care Act. And then secondly, what would be the ballpark EPS contribution from that book of business. Rick.

Yes, I think you've got to remember that inside that Affordable Care Act, revenue was about $90 million of cost plus revenue, so that's going to be lower margin. And so I'll look at it from an operating income standpoint. I think when you look at our normal range of 10% to 15%, you're going to be on the lower end of that 10% to 15%, because $90 million of it is lower than 10%, because it is cost plus type of revenue. Bruce?

Bruce Caswell actually has some thoughts he’d like to add to that, Brian.

Yes, Brian. I thought it’d be helpful just kind of frame the overall discussion around repeal and replace the Affordable Care Act. So I'll take a couple of minutes to do that. It's impossible really to speculate at this point about the specific details of how the efforts to repeal and replace will proceed. But Rich mentioned and it's important to come back to, that there are some underlying perspectives in terms of president-elect Trump’s position on health care that are important; one is to broaden health care access; the second is to make it more affordable; and the third is to improve quality. So, we think it's -- while there is certainly likelihood right that repeal will proceed, it will be coupled with the replacement. Putting it in context, the repeal would take a congressionally granted benefit away from 20 million people, and with about 28.9 million Americans still on uninsured, you could see up to 50 million folks without insurance. We think that the fundaments of a program that might replace the Affordable Care Act are still obviously yet to be bolted down, but some of the options that are on the table have been advanced by house republic in the overtime. Those could include changing or ending the individual or employer mandate and acting insurance reforms to address things like the minimum essential benefits. Restructuring premiums, you probably read a bit about, what might happen with subsidies, and then individuals could receive a tax credit they could use to purchase insurance. So that low income population to have more access. And this could be done in combinations possibly with the heath savings accounts. So, there are lot of moving pieces here. And certainly a day or so into the new administration, if you will, we’re really looking…

It’s a lot of context. Thank you. Lot of good detail for us. My follow-up is on the work program. You had mentioned we’re just coming to an end and had some point to the end. I'm curious what the revenue contribution is for the year? When do you assume it's going to end, means so we don't have a situation where we’re guessing like Affordable Care Act, and then you've got $3.8 billion of one-time restructuring charge? Thanks.

Rick Nadeau is going to fill that for us Brian.

It's actually three questions, I think let me make sure I get them all for you Brian. I think first-off for fiscal year '17, I think you should think about $65 million or so of revenue we have in fiscal year '17 from the program. The program is scheduled in right towards the end of fiscal year '17. So really this is a fiscal '18 type of event for you to think about. And the last question on the restructuring charges. Yes, that is a one-time item. When we acquired Remploy in April of 2015, we wound up with a back office along with that. So then we round up and had two back offices for Human Services in the United Kingdom. And so what we're really doing is putting it together, so that we can rationalize the cost. And so it'll be severance and lease termination costs, those types of things.

Thanks, Brian. Next question please.

Our next question is from Richard Close with Canaccord Genuity.

With respect to the pipeline, Rich, can you talk a little bit in terms of, is there anything significant from a size perspective in the pipeline? And then also as we think about the new administration coming on, is there anything in the pipeline that could possibly potentially go away with the new administration?

Let me answer the second question first. I don't think so. I think we've tried to with a reasonable understanding of what we think might be at risk relative to a new administration when we talk about the direct Affordable Care Act work we do, order magnitude of $160 million, Richard. So, I think that covers all of it. As it relates to the composition of the pipeline, and I think we've disclosed that in fiscal '17 we'll be looking at about $1 billion in rebids. I don't think there's any one item that's so large that is disproportionate I think it's a good mix. So I think that's actually healthy and that we've got a little concentration in the pipeline situation in fiscal '17.

And my follow-up question would be more longer term in nature. As you think about the new administration, where do you think, there will be opportunity for you? In the past, you've talked about integration. Is there anything in what candidate Trump has talked about that you think really isn't the sweet spot for MAXIMUS?

It's a great question. Bruce Caswell, I know has some thoughts, he’d like to share your view on that.

A few thoughts, yes. I mean, first is, Rich mentioned that one of the fundamentals here is that Republicans tend to outsource more. And in the Trump administration, we expect that it's going to continue to be a strong component of state's rights and the concept of devolving authority and pushing federal administration down to the states. And there's a very healthy debate going on right now in policy circles about what that might mean for the Medicaid program and for block granting. And nothing is assured. Prior studies that looked at block granting Medicaid suggested, while it could reduce federal expenditures by about $913 billion over 10 years, obviously, the costs have to be expect up somewhere, and there are number of governors that don’t necessarily want to pick that up, they see it as an unfunded mandate. So there is a tension. But I think there is an overall proclivity towards states rights and pushing program administration down, which I think plays very much to our strength. Otherwise, it's very early days in terms of trying to speculate what other program areas within Human Services, or within our Federal businesses and so forth, might become a focal point. We don’t have the answer page obviously for issues like immigration. But there are welfare reform efforts out there with 10-3 authorization, there are efforts to address employment challenges on an ongoing basis. So, there could be new initiatives that do resolve from the transition of the administration. But we typically wouldn’t get into a lot of those details for competitive reasons, at this point.

Because I think it's fair to say that this could very well be a breath of fresh air to take a hard look at some of the macro processes here. And I do think welfare an employment areas is one that will be right for that opportunity. So, we’re anxious to see how that develops, Richard.

Thanks Richard. Next question please.

Our next question is from Charlie Strauzer with CJS Securities.

If you could touch just a little bit more, I know, you touched little bit on jobactive in Australia. But may be give us a little better update there as to how the ramp is going? And also what are your expectations for the year? Thanks.

We will do that, and Bruce will handle that one.

So with regard to jobactive, it's important to note that most, if not all, of the vendors, and I think we’ve may be talked about this before on the jobactive program, are experiencing volume related challenges. And it's not useful to see fluctuations in a new program like that, some estimates that were provided to the vendors as part of the tender. We've mentioned before that the Australian unemployment rate is fairly low. It's about 5.7%. And that's the lowest it's been since 2013. And that simply as lower than the rates that were assumed in the tender. However, we also noted that the program is profitable, and we feel like it's done a nice job of continuing to improve on the back half of FY '16, as the contract continues to mature and we continue to execute strategies to make sure we manage our cost effectively, and really create very much a performance management environment within the contract. So, jobactive has been more a story about the margins, not being as robust as we may have initially expected. But we feel like the contract is on a solid footing.

And the just the follow-up, just on the UK, there’s forward contract there any update there. Is that related to the $20 million of contract that you’re not going to revisit. Is that the contract that you're referring to, or is there something else?

No, that was not big contracts that we were referring to in terms of the rebid. But I can provide a little bit of an update on fit for work itself. So, we have been working closely with our clients in the United Kingdom. And we’re wrapping up the small pilot project in partnership with the DWP, that's looking to determine the impacts of certain marketing efforts in a certain region of the country to a certain set of employers. How that will affect uptake within the program. In addition, Rich spoke about the Green Paper that was recently published, and there are number of references to fit for work within the Green Paper that speaks to new opportunities, the increased awareness of the program. So, we’re going to continue to work with the client and try to find a balanced approach to meet their program objectives as they evolve overtime and fit within the construct of their vision for a more holistic approach to employment and health in the United Kingdom. And those dialogues will just continue over the next several months. And I just answered the obvious follow-on question, which is what was the contract spend? That was the $20 million that we chose not to rebid. And that was the health insurance exchange contract with the State of Connecticut.

Thanks, Charlie. Next question please.

Our next question is from Allen Klee with Sidoti.

Can you provide any comment on the two larger contracts that are up for rebid this year? Timing on them and just any color or your thoughts on it.

One second Allen.

Allen, if I understand your question it's the timing of the contracts that are up for rebid. The timing of the contracts are really skewed to the tail-end of the year. So that for all practical purposes, the results of those rebids become a fiscal year '18 revenue topic, not a fiscal year '17. So, it's skewed towards the end of the year.

And could you give us some color on the appeals business doing well this quarter, although it's not supposed to continue. What do you think was behind that?

Glad to do that. Rick Nadeau is anxious to answer that question.

It wasn't anything overly significant other than just a build-up in the backlog of work that they worked steadily during the fourth quarter; worked it down; greater volumes; create an improvement in our revenue. But also pretty good lift in the profitability inside the rates that you get, or recovery of fixed and variable cost of volumes. When volumes are high, they're more accretive. We worked that backlog down to more normal levels. So what we're really just trying to say is that it'll be a more normalized level in fiscal year '17 as we worked off that backlog that has built up.

Allen, thank you for your question. Next question please.

Our next question is from Mark Kelly with Stifel.

I'm just curious, you’ve mentioned block grants a couple of times. Can you talk a little bit more specifically about what that could mean for MAXIMUS? Thanks.

We will do that. Bruce is anxious to talk about that.

Sure, anything related to policy. Thanks Mark. So, it's still early days, obviously, in terms of the thinking there. But I think president-elect Trump has mentioned as part of his overall approach to policy that he supports the block granting in Medicaid. I think, couple of things. I mean there's that tension that I mentioned earlier about how -- what kind of funding obligation that would create at the state level, and whether the federal funding would be sufficient in that environment. We just can't comment necessarily on how that would be resolved. But presuming that it moves down, it opens up an interesting conversation, because Medicaid then becomes more akin to CHIP in terms of the overall responsibility and authority given to the states to further put their stamp on the program, and kind of make it their own. And it does raise the question then about whether there're opportunities to look at a broader role for MAXIMUS in areas like eligibility determination. You may recall that, historically, for programs like Medicaid and TANF, and the SNAP program, or food SNAP program, historically, a merit-based employee has had to have to make those final eligibility determinations. Whereas in CHIP, where it was more a function, more like a block grant, that's not in the case. So, we're optimistic that we can enter into some dialogue with our clients about how that would function for them. And I think that we’re extremely well positioned, given the existing state infrastructure we have to support that, should it occur.

Thanks, Mark. Next question please.

Our next question is from Frank Sparacino from First Analysis.

Just one question on the Federal Services side of things. If we were to adjust out the call center in Boise, they’re trying to figure out if that segment grew at all in '16. And I guess longer term, what is the expectation? Is that an area of growth? What’s on the horizon, what that keeps you excited about that segment?

I am going to ask Rick Nadeau in a minute to talk about that, Frank. But I think the dynamics inside of our federal segments are very, very interesting. When I think about that topically, I do think about the size of the federal government, I think about our current breadth and depth, and I do think about the Acentia acquisition and how our plan to take advantage of the synergies is in place and is yet to be realized. But rest assured, we do have actions and plans in place to drive us to that goal. Rick?

Yes. We had acquired growth in the federal sector that was from the acquisition of Acentia. And then as you referred to, we had the Boise contact center. And we said that was about $49 million. I think if you take those two pieces out, you had about $35 million of organic growth. But obviously the $49 million is bigger than the $35 million. Is that helpful Frank?

Yes, thank you.

Sure.

Thank you. The second question -- if not, next question please, operator.

[Operator Instructions] Our next question is from Shane Svenpladsen from Avondale Partners.

Acknowledging the new administration may take a more aggressive stance in terms of outsourcing. Have you seen anything more recently in terms of changes on the parts of governments to be amenable to outsourcing certain means to test their programs?

Well, I -- and Bruce is asking to chime in here. But I think we've seen a decade’s worth of that in terms of governments moving towards partnering with firms. Clearly is a trend towards working with fewer larger providers rather than historically governments may have sprinkled a lot of contracts to smaller suppliers, and in some cases hundreds and hundreds suppliers, so the trend to consolidate that supplier base, I actually think that that's being driven by the fact that there is a significant cost to manage all of the suppliers. So we've experienced that here in the U.S. and most notably in Australia and the United Kingdom. And I think the amount of work that we’re doing with many of our clients seems to be on the margin add-ons in terms of the work that we’re doing. Bruce, is that your view?

Absolutely, my view. I think that really, Shane, when we look the model; if you're in the right place; and you're able to have the dialogue with the client about the problems they are facing at the moment; and thirdly you've got the infrastructure and ability to deliver. You can really grow nicely off of existing contracts. And we’ve actually even modified our business delivery model to accommodate that through the use of greater shared services centers where we can dynamically allocate demand meet search requirements for our clients. And there're several examples out there where I think we've seen their propensity to outsource when clients have an immediate need. So, for example, one that was in the press is where we're helping the State of Arkansas address the backlog in Medicaid renewal determinations of over 100,000 cases. And we were able to rapidly respond to that, stand-up the capability and help them through that issue. So, I will say, I've been pleased with how the value proposition and the ability to provide that kind of support, which itself can lead to longer term relationships, has been a bit on the uptick in the marketplace.

And then just quickly, if you can provide an update on Acentia and kind of your progress in creating BPO opportunities within those contract vehicles?

I'll go ahead and take that Shane. So, as you know, when we combined with Acentia, we were able to add to our portfolio, if you will about 12 new contract vehicles that cover largely civilian and federal agencies, in terms of our ability to then market to those agencies and create new opportunity. So we've always maintained that we'll take some time to gain traction in new opportunities resulting from that acquisition. And I will say that I've been pleased with some of the initial things that we've seen in terms of contract vehicles where we've had bids that have expanded as a consequence of a larger capability that we can bring to the table. Rich mentioned in his prepared remarks that our business development teams are fully integrated now, really pushing and pursuing new opportunities at several pipeline itself remain quite strong. It does include new BBO business where we can leverage our core capabilities, but go-to-market through those contract vehicles that I mentioned. And also, if you recall, the federal government contracting space is one where there are larger government-wide acquisition contracts that companies have to qualify for to them subsequently receive past quarter opportunities. And I will say without disclosing the names of the vehicles themselves, we are, as a consequence of the Acentia combination, in a position now to qualify for much larger government-wide acquisition contracts that overtime will then deliver a lot of revenue through past quarters. So we expect to see towards mentioning as the new administration comes on-board and they put their appointees in place, and really begin to enact their agenda, there may be a bit of a slowdown on the federal side. But many of the programs that we look at are tied to long-term transformational projects in key government agencies. And generally those transformation programs that can be decade in length don't change dramatically as the administrations change.

Thank you for your question Shane. Next question please.

[Operator Instructions] And our next question is from Richard Close from Canaccord Genuity.

With respect to HAAS, I guess $200 million this year, a few $100 million expected next year. I think that's a little bit below the $225 million that you guys have previously adjusted to. Can you just go over that?

Yes. Richard, this is Rick. That would currency. Following Brexit, the currency exchange rate went from 1.42 or whatever it's down to about 100, and that went down below 1.20. But it's now at about 1.25. So, that's really accounting for the reduction, it's all the difference between the UK and the U.S. currency.

And another follow-up would be, the $40 million federal contract that you talked about that's negatively, or included in your initial '17 guidance. Just to be clear, that is not ACA related. Correct?

That is correct. That is not an ACA contract.

Next question please.

Our next question is a follow-up from Brian Kinstlinger of Maxim Group.

In a similar discussion on the DoE contract, I am not sure if we discussed that today, I may have missed it. I am curious if for the full-year of fiscal '17, it assume to be at mature margins. If not, when might it hit mature margins in your opinion? Thanks.

Yes. It's Rick. It's across, everybody should be profitable. It will continue to improve overtime. But I think we're getting to the point where we’re getting a lot of closer to the mature margins.

And in fact I would, Brian, I would give our team a call-out further way to handle that transaction. There has been a lot of moving pieces. And I think they've done a very good job. And I agree with the Rick that in our category, it's crossed over to -- I'll put it out of start-up. But as is always the case, large contracts have challenges.

So, just to be clear, in fiscal '18, there will be a small slingshot effect in the first half of the year, not fully mature whereas it might be in the first half of fiscal '18. Is that the way we should think about it?

I would think that the way I would put it is that all contracts that we have those size, we should be improving the profitability of them overtime. But yes, we're still improving the margin on that contract. But I would be taking smaller rather than bigger.

Yes, small slingshot, Brian.

Thanks, Brian. Next question please.

Ladies and gentlemen, we have reached the end of the question-and -answer session and our time for today’s call. MAXIMUS thank you for your time and participation. You may disconnect your lines, at this time.

Thank you.